Bangkok--18 Aug--Standard & Poor's
--Robust public finances, a solid net external creditor position, strong track record of political stability and prudent macroeconomic management underpin the ratings, while some vulnerability to exogenous shocks remains.
--We affirm the 'AAA/A-1+' sovereign credit ratings on Singapore.
--The outlook remains stable on our expectation that the sizeable external and fiscal reserves would be maintained.
Standard & Poor's Ratings Services today affirmed its 'AAA' long-term and 'A-1+' short-term sovereign credit ratings on the Republic of Singapore. The outlook remains stable.
The ratings on Singapore are underpinned by the sovereign's enduring fiscal and external strengths, and its strong record of prudent macroeconomic management. At the same time, the ratings take into account the challenges the country faces as a small and open economy.
We estimate Singapore's general government surplus--consistently among the highest in the world--to have averaged 8.0% of GDP between 2005 and 2008. This level of surplus provides high fiscal flexibility, which is needed for structural reforms, such as the ongoing efforts to diversify the economy--making it less reliant on electronics exports--and to enhance cost competitiveness.
"The high fiscal flexibility also provides additional cushioning against potential economic and fiscal shocks," said Standard & Poor's credit analyst Yee Farn Phua.
The city-state is facing its worst-ever recession in 2009, but the government's considerable external and fiscal reserves allowed it to unveil a bumper stimulus package in January worth Singapore dollar (S$) 20.5 billion (8% of GDP), focusing on job retention and freeing up credit.
The impact of the stimulus package has alleviated some of the effects of the current global recession, as recent indicators such as non-oil domestic exports, manufacturing data, and unemployment figures are pointing to signs of a recovery in the near term, Mr. Phua said.
The ratings on Singapore are also supported by the country's political stability. The government has consistently embraced a pragmatic and forward-looking approach to policymaking.
Given its small and open economy, however, Singapore is more exposed to exogenous shocks than some of its peers. Nevertheless, Singapore's history of recovery from past recessions is remarkable. GDP contraction of 1.4% in the 1998 financial crisis was followed by swift return to growth of 7.2% in 1999 and 10.1% in 2000.
Although Singapore's export base has become more diversified since then, its economic performance remains vulnerable to global demand. Given the small size of its domestic market, it has no significant room to shift its focus to more domestic-oriented growth, unlike some of its neighboring countries.
"This vulnerability is in part mitigated by the government's fiscal flexibility to deal with cyclical shocks and the continued efforts in structural reforms to ensure the economy remains competitive," Mr. Phua said.
Singapore's financial sector remains in relatively good shape. Effective regulation, coupled with banks' ample liquidity, good capitalization, and the bulk of their exposure being to the local market, has mitigated some of the effects from the global financial fallout. As of June 2009, systemwide nonperforming loans are estimated to be about 2.5% and mid-year results of local banks still indicated relatively strong profits.
RELATED RESEARCH
This article is based in part on the following criteria article:
"Sovereign Credit Ratings: A Primer," published May 29, 2008, on RatingsDirect.
Complete ratings information is available to RatingsDirect subscribers at www.ratingsdirect.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com; select your preferred country or region, then Ratings in the left navigation bar, followed by Find a Rating.
Media Contact:
David Wargin, New York (1) 212.438.1579, [email protected]
Analyst Contacts:
YeeFarn Phua, Singapore (65) 6239-6341
Takahira Ogawa, Singapore (65) 6239-6342
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